Fitch introduces scoring for ESG considerations

As environmental, social and governance (ESG) factors become increasingly important to investors, Fitch Ratings Inc. is introducing a new scoring system to demonstrate how these considerations impact credit ratings.

The credit-rating agency says its new ESG Relevance Scores will provide consistency and transparency in reporting how ESG affects rating decisions across all asset classes. “Fitch is the first credit rating agency to systematically publish an opinion about how ESG issues are relevant and material to individual entity credit ratings,” it says in a release, adding that it views the scores as “a substantial step forward in enhancing transparency for investors, and for the broader discussion around ESG and credit.”

The new scores are first being introduced for non-financial corporates, and will be expanded to ratings for banks, non-bank financials, insurance, sovereigns and other ratings categories. Fitch reports that its initial analysis finds that 22% of its current corporate ratings are being influenced by ESG factors.

“Our focus is purely on fundamental credit analysis and so our ESG Relevance Scores are solely aimed at addressing ESG in that context. The scores do not make value judgements on whether an entity engages in good or bad ESG practices, but draw out which E, S, and G risk elements are influencing the credit rating decision,” said Andrew Steel, global head of sustainable finance at Fitch, in a statement.

“Our scores will enable investors to agree or disagree with the way in which we have treated ESG at both an entity and a sector level, assist them in making their own judgements about credit rating impact, and enable them to fully discuss all aspects of the credit with our analytical teams,” he added.